Learn about your options for relief if you owe money to the IRS.
If you owe back taxes to the IRS and penalties are stacking up fast, then you need to find a solution as quickly as possible. The information below can help you understand your options for tax debt relief. It’s always recommended that you consult with a tax attorney or tax resolution company to ensure you achieve the best possible outcome.
Option 1: Installment Agreement (IA)
The most common resolution relief option for tax debt is to set up an Installment Agreement (IA). This is a tax repayment plan that you arrange with the IRS, negotiating payments that will work for your budget. You make fixed monthly payments to pay off one or more years of back taxes. This also functions like a consolidation plan, because you can consolidate multiple years of tax debt if you owed for more than one year.
Option 2: Penalty abatement
This resolution option is often used in coordination with an IA. You negotiate with the IRS to reduce penalties and penalty interest charges applied to the back taxes you owe. This reduces the total amount of tax debt you have, making it faster and easier to pay off your debt. Penalties can be as high as 25% of your total debt each month, so penalty abatement is often the key to getting out of tax debt quickly.
Option 3: Currently Not Collectible (CNC) status
If you currently cannot afford to make any payments to the IRS to pay off the back taxes you owe, you can apply for CNC. This basically tells the IRS that you’re facing a period of financial hardship and don’t have the means to pay them. The IRS will review your financial situation regularly once you get CNC, so they know when you have the means to start making payments.
Option 4: Offer in Compromise (OIC) agreement
If you simply don’t have the means to pay back everything you owe to the IRS, then you can make an Offer in Compromise (OIC). An OIC is basically a settlement plan for tax debt. The IRS reviews your finances to see how much they can reasonably expect you to pay back. Then they set up a payment plan to recoup that amount. Once they receive the full settlement funds, your remaining tax debt is dissolved.
Option 5: Innocent spouse relief
The final option for tax debt relief is known as innocent spouse relief. If your spouse incurred tax debt without your knowledge and you received no financial gain as a result, you can apply for innocent spouse. Basically, the IRS may acknowledge that you are not liable for the back taxes owed and only your spouse owes the money. If you qualify for innocent spouse relief, the entire balance is cleared out of your name without any need to pay a dime or any penalties.
Steps for finding tax debt relief
If you owe back taxes to the IRS, it’s in your best interest to take care of it as quickly as possible. Although you can try to work with the IRS directly or apply for these relief options online, it’s recommended to use a licensed tax attorney or with a tax debt resolution company that has licensed attorneys on staff.
- First get all your documents in order. This will include income tax returns, as well as bank statements, all current debt statements, and investment accounts.
- Find a reputable tax debt resolution service that’s rated by the Better Business Bureau.
- Review your finances with the team so they can see where you stand and understand your financial situation.
- Follow their recommendations to apply for the right tax debt relief option for your needs.
Working with tax resolution experts will help ensure that you get out of tax debt for the lowest amount possible. The team can negotiate to minimize penalties and penalty APR charges. They can also help you understand if you meet the standards to qualify for settlement. Using the do-it-yourself options online through IRS.gov may get you a faster resolution, but it’s often more expensive. You want to negotiate!
How to find a reputable tax debt resolution company
There are some good rules of thumb you can use to make sure you’re working with qualified experts:
- Always make sure that the company has licensed tax attorneys on staff that will handle all direct negotiations with the IRS.
- Check the BBB to make sure the company has an A or A+ rating. If they have complaints, make sure those were all resolved. Never work with a company that’s under a class-action lawsuit with a state Attorney General’s office.
- Check independent third-party review websites and consumer reports online to make sure the company provides excellent customer service.
If you’re still concerned about getting scammed, you can use an accredited tax relief referral network. These networks vet companies using standards like the ones above. This gives you peace of mind that you’re working with someone from a network of professionals, so you can have more confidence that the service is legit.
Finding state tax debt relief
Although it’s not as common as federal IRS tax debt, it is possible that you can owe state taxes. The options for relief are largely the same as those for federal. And, as long as you’re working with a state-licensed tax attorney, they should be able to help you find relief for both types of tax debt, if you owe the IRS and your state’s tax office.